The internet has done very little that we can consider good to existing businesses, and the newspaper industry is about to go through a considerable retraction, according to a piece that ran this week in the New York Times.
Our only reaction is ‘Where have they been for the past ten years’ the internet had a huge impact on magazines through the 90s, initially consumer and then business to business. It’s fairly obvious that reading online is taking up more and more of the news media, and that this is simply a natural progression.
This is what the internet does. It makes businesses more efficient and that means purer markets, where the lowest available price is reached more rapidly than previously and where everyone drifts to one product earlier, cutting out all of its rivals. It creates YouTubes, Googles and Amazons where hardly anyone uses anything else, not a flat geographical market where each town has its own local newspaper.
So yes the New York Times analysis is correct, and it may mean the end for various institutions such as the San Francisco Chronicle, which it tells us is now losing $1 million a week and the article suggests that many newspapers are likely to be 15% down in revenues this year having been 8% down last year.
But this is really just the second round of internet driven consolidation. The first was created when news went mostly onto the TV, then again it happened when news went online, and now the after effect is that years later enough advertising is going online and enough advertising technique has been mastered so that online advertising can be delivered locally.
Internet advertising revenues have just reached $21 billion in 2007 according to the IAB, a rise of 26%. That money has to come from somewhere, and the TV, radio and newspapers are really the only likely targets. An additional $4 billion to $5 billion each year means that until advertising strikes a balance that it likes across all the potential delivery options, all of them except the internet are falling, and once the handset joins in as mobile advertising begins to take off in the next three years, then that too will be replacing something. The only survival route for a modern newspaper, is to stop being only a newspaper, and to shift into all those new media.
The New York Times suggested that it would not be bankruptcies but mergers that this round of reduction would trigger, and we agree with that. But essentially the only paper news vehicles that will flourish long term are those which shift an element of their business onto the internet, and in order to do that, they will need widely appreciated brands.